IFRS Red Book - IAS 7 Statement of Cash Flows

IAS 7
IAS 7
Statement of Cash Flows

In April 2001 the International Accounting Standards Board adopted IAS 7 Cash Flow
Statements, which had originally been issued by the International Accounting Standards
Committee in December 1992. IAS 7 Cash Flow Statements replaced IAS 7 Statement of Changes
in Financial Position (issued in October 1977).
As a result of the changes in terminology used throughout the IFRS Standards arising from
requirements in IAS 1 Presentation of Financial Statements (issued in 2007), the title of IAS 7 was
changed to Statement of Cash Flows.
In January 2016 IAS 7 was amended by Disclosure Initiative (Amendments to IAS 7). These
amendments require entities to provide disclosures about changes in liabilities arising from
financing activities.
Other Standards have made minor consequential amendments to IAS 7. They include
IFRS 10 Consolidated Financial Statements (issued May 2011), IFRS 11 Joint Arrangements (issued
May 2011), Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) (issued October
2012), IFRS 16 Leases (issued January 2016) and IFRS 17 Insurance Contracts (issued May 2017).
姝 IFRS Foundation A1023

IAS 7
CONTENTS
from paragraph
INTERNATIONAL ACCOUNTING STANDARD 7
STATEMENT OF CASH FLOWS
OBJECTIVE
SCOPE 1
BENEFITS OF CASH FLOW INFORMATION 4
DEFINITIONS 6
Cash and cash equivalents 7
PRESENTATION OF A STATEMENT OF CASH FLOWS 10
Operating activities 13
Investing activities 16
Financing activities 17
REPORTING CASH FLOWS FROM OPERATING ACTIVITIES 18
REPORTING CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES 21
REPORTING CASH FLOWS ON A NET BASIS 22
FOREIGN CURRENCY CASH FLOWS 25
INTEREST AND DIVIDENDS 31
TAXES ON INCOME 35
INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES 37
CHANGES IN OWNERSHIP INTERESTS IN SUBSIDIARIES AND OTHER
BUSINESSES 39
NON-CASH TRANSACTIONS 43
CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES 44A
COMPONENTS OF CASH AND CASH EQUIVALENTS 45
OTHER DISCLOSURES 48
EFFECTIVE DATE 53
APPROVAL BY THE BOARD OF DISCLOSURE INITIATIVE (AMENDMENTS TO
IAS 7) ISSUED IN JANUARY 2016
FOR THE ACCOMPANYING GUIDANCE LISTED BELOW, SEE PART B OF THIS EDITION
ILLUSTRATIVE EXAMPLES
FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION
BASIS FOR CONCLUSIONS

DISSENTING OPINION
A1024 姝 IFRS Foundation

IAS 7
International Accounting Standard 7 Statement of Cash Flows (IAS 7) is set out in

paragraphs 1–60. All the paragraphs have equal authority but retain the IASC format of
the Standard when it was adopted by the IASB. IAS 7 should be read in the context of its
objective and the Basis for Conclusions, the Preface to International Financial Reporting
Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors provides a basis for selecting and applying
accounting policies in the absence of explicit guidance. [Refer: IAS 8 paragraphs 10–12]

IAS 7
International Accounting Standard 7

Statement of Cash Flows1
Objective
Information about the cash flows of an entity is useful in providing users [Refer: Conceptual
Framework paragraphs OB2–OB10 and QC32] of financial statements with a basis to assess the
ability of the entity to generate cash and cash equivalents and the needs of the entity to
utilise those cash flows. The economic decisions that are taken by users require an
evaluation of the ability of an entity to generate cash and cash equivalents and the timing
and certainty of their generation.
The objective of this Standard is to require the provision of information about the historical
changes in cash and cash equivalents of an entity by means of a statement of cash flows
which classifies cash flows during the period from operating, investing and financing
activities.
Scope
1 An entity shall prepare a statement of cash flows in accordance with the

requirements of this Standard and shall present it as an integral part of
its financial statements for each period for which financial statements
are presented.
2 This Standard supersedes IAS 7 Statement of Changes in Financial Position, approved

in July 1977.
3 Users of an entity’s financial statements are interested in how the entity

generates and uses cash and cash equivalents. This is the case regardless of the
nature of the entity’s activities and irrespective of whether cash can be viewed as
the product of the entity, as may be the case with a financial institution.
Entities need cash for essentially the same reasons however different their
principal revenue-producing activities might be. They need cash to conduct
their operations, to pay their obligations, and to provide returns to their
investors. Accordingly, this Standard requires all entities to present a statement
of cash flows.
Benefits of cash flow information
4 A statement of cash flows, when used in conjunction with the rest of the
financial statements, provides information that enables users to evaluate the
changes in net assets of an entity, its financial structure (including its liquidity
and solvency) and its ability to affect the amounts and timing of cash flows in
order to adapt to changing circumstances and opportunities. Cash flow
information is useful in assessing the ability of the entity to generate cash and
cash equivalents and enables users to develop models to assess and compare the
1 In September 2007 the IASB amended the title of IAS 7 from Cash Flow Statements to Statement of Cash
Flows as a consequence of the revision of IAS 1 Presentation of Financial Statements in 2007.

IAS 7
present value of the future cash flows of different entities. It also enhances the
comparability [Refer: Conceptual Framework paragraphs QC20–QC25] of the reporting
of operating performance by different entities because it eliminates the effects of
using different accounting treatments for the same transactions and events.
5 Historical cash flow information is often used as an indicator of the amount,

timing and certainty of future cash flows. It is also useful in checking the
accuracy of past assessments of future cash flows and in examining the
relationship between profitability and net cash flow and the impact of changing
prices.
Definitions
6 The following terms are used in this Standard with the meanings
specified:
Cash comprises cash on hand and demand deposits.
Cash equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
[Refer: paragraphs 7 and 8]
Cash flows are inflows and outflows of cash and cash equivalents.
[Refer: paragraphs 7–9]
Operating activities are the principal revenue-producing activities of the
entity and other activities that are not investing or financing activities.
[Refer: paragraphs 13–15]
Investing activities are the acquisition and disposal of long-term assets
and other investments not included in cash equivalents.
[Refer: paragraph 16]
Financing activities are activities that result in changes in the size and
composition of the contributed equity and borrowings of the entity.
Cash and cash equivalents

7 Cash equivalents are held for the purpose of meeting short-term cash
commitments rather than for investment or other purposes. For an investment
to qualify as a cash equivalent it must be readily convertible to a known amount
of cash and be subject to an insignificant risk of changes in value. Therefore, an
investment normally qualifies as a cash equivalent only when it has a short
maturity of, say, three months or less from the date of acquisition.E1 Equity
investments are excluded from cash equivalents unless they are, in substance,
cash equivalents, for example in the case of preferred shares acquired within a
short period of their maturity and with a specified redemption date.E2
E1 [IFRIC Update—May 2013: IAS 7 Statement of Cash Flows—identification of cash equivalents The
Interpretations Committee received a request about the basis of classification of financial assets as cash
equivalents in accordance with IAS 7. More specifically, the submitter thinks that the classification of
investments as cash equivalents on the basis of the remaining period to maturity as at the balance sheet
date would lead to a more consistent classification rather than the current focus on the investment’s
maturity from its acquisition date. The Interpretations Committee noted that, on the basis of paragraph 7 of
continued...

IAS 7
...continued
IAS 7, financial assets held as cash equivalents are held for the purpose of meeting short-term cash
commitments rather than for investment or other purposes. This paragraph further states that an
investment is classified as a cash equivalent, only when it has a short maturity from the date of acquisition.
The Interpretations Committee observed that paragraph 7 of IAS 7 promotes consistency between entities in
the classification of cash equivalents and did not think that the requirements of paragraph 7 of IAS 7 were
unclear. On the basis of the above, the Interpretations Committee determined that in the light of the existing
IFRS guidance, an interpretation or an amendment to Standards was not necessary and it did not expect
significant diversity in practice to develop regarding their application. Consequently, the Interpretations
Committee decided not to add this issue to its agenda.]
E2 [IFRIC Update—July 2009: Determination of cash equivalents The IFRIC received a request for guidance on
whether investments in shares or units of money market funds that are redeemable at any time can be
classified as cash equivalents. The IFRIC noted that paragraph 7 of IAS 7 states that the purpose of holding
cash equivalents is to meet short-term cash commitments. In this context, the critical criteria in the
definition of cash equivalents set out in paragraph 6 of IAS 7 are the requirements that cash equivalents be
‘convertible to known amounts of cash’ and ‘subject to insignificant risk of changes in value’. The IFRIC
noted that the first criterion means that the amount of cash that will be received must be known at the time
of the initial investment, ie the units cannot be considered cash equivalents simply because they can be
converted to cash at any time at the then market price in an active market. The IFRIC also noted that an
entity would have to satisfy itself that any investment was subject to an insignificant risk of changes in
value for it to be classified as a cash equivalent. Given the guidance in IAS 7, the IFRIC did not expect
significant diversity in practice because the purpose of holding the instrument and the satisfaction of the
criteria should both be clear from its terms and conditions. Accordingly, the IFRIC decided not to add this
issue to its agenda.]
8 Bank borrowings are generally considered to be financing activities. However, in

some countries, bank overdrafts which are repayable on demand form an
integral part of an entity’s cash management. In these circumstances, bank
overdrafts are included as a component of cash and cash equivalents. A
characteristic of such banking arrangements is that the bank balance often
fluctuates from being positive to overdrawn.
9 Cash flows exclude movements between items that constitute cash or cash
equivalents because these components are part of the cash management of an
entity rather than part of its operating, investing and financing activities.
Cash management includes the investment of excess cash in cash equivalents.
Presentation of a statement of cash flowsE3, E4
E3 [IFRIC Update—August 2005: Value added tax The IFRIC considered whether it should add to its agenda a
project to clarify whether cash flows reported in accordance with IAS 7 should be measured as inclusive or
exclusive of value added tax (VAT). There was evidence that different practices will emerge, the differences
being most marked for entities that adopt the direct method of reporting cash flows. IAS 7 does not
explicitly address the treatment of VAT. The IFRIC noted that it would be appropriate in complying with
IAS 1 Presentation of Financial Statements for entities to disclose whether they present their gross cash
flows as inclusive or exclusive of VAT. The IFRIC decided that it should not develop an Interpretation on this
topic, because while different practices might emerge, they were not expected to be widespread. The IFRIC
would recommend to the IASB that the treatment of VAT should be considered as part of the review of IAS 7
being carried out within the project on performance reporting.]
E4 [IFRIC Update—March 2008: Classification of expenditures The IFRIC received a request for guidance on the
treatment of some types of expenditure in the statement of cash flows. In practice some entities classify
expenditures that are not recognised as assets under IFRSs as cash flows from operating activities while
others classify them as part of investing activities. Examples of such expenditures are those for exploration
and evaluation activities (which can be recognised, according to the applicable standard, as an asset or an
expense). Advertising and promotional activities, staff training and research and development could also
raise the same issue. The IFRIC concluded that the issue could be best resolved by referring it to the Board
with a recommendation that IAS 7 should be amended to make explicit that only an expenditure that results
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IAS 7
...continued
in a recognised asset can be classified as a cash flow from investing activity. The IFRIC therefore decided
not to add the issue to its agenda.]
10 The statement of cash flows shall report cash flows during the period
classified by operating, investing and financing activities.
11 An entity presents its cash flows from operating, investing and financing
activities in a manner which is most appropriate to its business. Classification
by activity provides information that allows users [Refer: Conceptual Framework
paragraphs OB2–OB10 and QC32] to assess the impact of those activities on the
financial position [Refer: Conceptual Framework paragraphs 4.4–4.7] of the entity
and the amount of its cash and cash equivalents. This information may also be
used to evaluate the relationships among those activities.
12 A single transaction may include cash flows that are classified differently.
For example, when the cash repayment of a loan includes both interest and
capital, the interest element may be classified as an operating activity and the
capital element is classified as a financing activity.
Operating activities
13 The amount of cash flows arising from operating activities is a key indicator of
the extent to which the operations of the entity have generated sufficient cash
flows to repay loans, maintain the operating capability of the entity, pay
dividends and make new investments without recourse to external sources of
financing. Information about the specific components of historical operating
cash flows is useful, in conjunction with other information, in forecasting
future operating cash flows.
14 Cash flows from operating activities are primarily derived from the principal
revenue-producing activities of the entity. Therefore, they generally result from
the transactions and other events that enter into the determination of profit or
loss. Examples of cash flows from operating activities are:
(a) cash receipts from the sale of goods and the rendering of services;
(b) cash receipts from royalties, fees, commissions and other revenue;
(c) cash payments to suppliers for goods and services;
(d) cash payments to and on behalf of employees;

(e) [deleted]
(f) cash payments or refunds of income taxes unless they can be specifically
identified with financing and investing activities; and
(g) cash receipts and payments from contracts held for dealing or trading
purposes.
Some transactions, such as the sale of an item of plant, may give rise to a gain or
loss that is included in recognised profit or loss. The cash flows relating to such
transactions are cash flows from investing activities. However, cash payments to
manufacture or acquire assets held for rental to others and subsequently held
for sale as described in paragraph 68A of IAS 16 Property, Plant and Equipment are

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cash flows from operating activities. The cash receipts from rents and
subsequent sales of such assets are also cash flows from operating activities.
[Refer: IAS 16 Basis for Conclusions paragraphs BC35A–BC35F]
15 An entity may hold securities and loans for dealing or trading purposes, in
which case they are similar to inventory acquired specifically for resale.
Therefore, cash flows arising from the purchase and sale of dealing or trading
securities are classified as operating activities. Similarly, cash advances and
loans made by financial institutions [Refer: Illustrative Examples, example B] are
usually classified as operating activities since they relate to the main
revenue-producing activity of that entity.
Investing activities
16 The separate disclosure of cash flows arising from investing activities is
important because the cash flows represent the extent to which expenditures
have been made for resources intended to generate future income and cash
flows. Only expenditures that result in a recognised asset in the statement of
financial position are eligible for classification as investing activities. [Refer: Basis
for Conclusions paragraphs BC3–BC8 and IFRS 6 Basis for Conclusions paragraphs BC23A
and BC23B] Examples of cash flows arising from investing activities are:
(a) cash payments to acquire property, plant and equipment, intangibles
and other long-term assets. These payments include those relating to
capitalised development costs [Refer: IAS 38 paragraphs 57–67] and
self-constructed property, plant and equipment; [Refer: IAS 16 paragraph
22]
(b) cash receipts from sales of property, plant and equipment, intangibles
and other long-term assets;
(c) cash payments to acquire equity or debt instruments of other entities

and interests in joint ventures (other than payments for those
instruments considered to be cash equivalents or those held for dealing
or trading purposes);
(d) cash receipts from sales of equity or debt instruments of other entities
and interests in joint ventures (other than receipts for those instruments
considered to be cash equivalents and those held for dealing or trading
purposes);
(e) cash advances and loans made to other parties (other than advances and
loans made by a financial institution [Refer: Illustrative Examples,
example B]);
(f) cash receipts from the repayment of advances and loans made to other
parties (other than advances and loans of a financial institution);
(g) cash payments for futures contracts, forward contracts, option contracts
and swap contracts except when the contracts are held for dealing or
trading purposes, or the payments are classified as financing activities;
and

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(h) cash receipts from futures contracts, forward contracts, option contracts
and swap contracts except when the contracts are held for dealing or
trading purposes, or the receipts are classified as financing activities.
When a contract is accounted for as a hedge of an identifiable position the cash
flows of the contract are classified in the same manner as the cash flows of the
position being hedged.
Financing activities
17 The separate disclosure of cash flows arising from financing activities is
important because it is useful in predicting claims on future cash flows by
providers of capital to the entity. Examples of cash flows arising from financing
activities are:
(a) cash proceeds from issuing shares or other equity instruments;
(b) cash payments to owners to acquire or redeem the entity’s shares;

(c) cash proceeds from issuing debentures, loans, notes, bonds, mortgages
and other short-term or long-term borrowings;
(d) cash repayments of amounts borrowed; and
(e) cash payments by a lessee for the reduction of the outstanding liability
relating to a lease. [Refer: paragraph 59 for effective date]
Reporting cash flows from operating activities
18 An entity shall report cash flows from operating activities using either:
(a) the direct method, [Refer: paragraph 19 and Illustrative Examples,

example A] whereby major classes of gross cash receipts and gross
cash payments are disclosed; or
(b) the indirect method, [Refer: paragraph 20 and Illustrative Examples,
example A] whereby profit or loss is adjusted for the effects of
transactions of a non-cash nature, any deferrals or accruals of past
or future operating cash receipts or payments, and items of
income or expense associated with investing or financing cash
flows.
19 Entities are encouraged to report cash flows from operating activities using the
direct method. The direct method provides information which may be useful in
estimating future cash flows and which is not available under the indirect
method. [Refer: paragraph 20] Under the direct method, information about major
classes of gross cash receipts and gross cash payments may be obtained either:
(a) from the accounting records of the entity; or
(b) by adjusting sales, cost of sales (interest and similar income and interest
expense and similar charges for a financial institution) and other items
in the statement of comprehensive income [Refer: IAS 1 paragraphs 81–105]
for:
(i) changes during the period in inventories and operating

receivables and payables;

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(ii) other non-cash items; and

(iii) other items for which the cash effects are investing or financing
cash flows.
20 Under the indirect method, the net cash flow from operating activities is
determined by adjusting profit or loss for the effects of:
(a) changes during the period in inventories and operating receivables and
payables;
(b) non-cash items such as depreciation, provisions, deferred taxes,
unrealised foreign currency gains and losses, and undistributed profits
of associates; and
(c) all other items for which the cash effects are investing or financing cash
flows.
Alternatively, the net cash flow from operating activities may be presented
under the indirect method by showing the revenues and expenses disclosed in
the statement of comprehensive income [Refer: IAS 1 paragraphs 81–105] and the
changes during the period in inventories and operating receivables and
payables.
Reporting cash flows from investing and financing activities
21 An entity shall report separately major classes of gross cash receipts and
gross cash payments arising from investing and financing activities,
except to the extent that cash flows described in paragraphs 22 and 24 are
reported on a net basis.
[Refer: Illustrative Examples, example A]
Reporting cash flows on a net basis
22 Cash flows arising from the following operating, investing or financing

activities may be reported on a net basis:
(a) cash receipts and payments on behalf of customers when the cash
flows reflect the activities of the customer rather than those of the
entity; and
(b) cash receipts and payments for items in which the turnover is
quick, the amounts are large, and the maturities are short.
23 Examples of cash receipts and payments referred to in paragraph 22(a) are:

(a) the acceptance and repayment of demand deposits of a bank;
(b) funds held for customers by an investment entity; and

(c) rents collected on behalf of, and paid over to, the owners of properties.
23A Examples of cash receipts and payments referred to in paragraph 22(b) are
advances made for, and the repayment of:
(a) principal amounts relating to credit card customers;
(b) the purchase and sale of investments; and

IAS 7
(c) other short-term borrowings, for example, those which have a maturity
period of three months or less.
24 Cash flows arising from each of the following activities of a financial

institution may be reported on a net basis:
[Refer: Illustrative Examples, example B]
(a) cash receipts and payments for the acceptance and repayment of
deposits with a fixed maturity date;
(b) the placement of deposits with and withdrawal of deposits from
other financial institutions; and
(c) cash advances and loans made to customers and the repayment of
those advances and loans.
Foreign currency cash flows
25 Cash flows arising from transactions in a foreign currency shall be

recorded in an entity’s functional currency by applying to the foreign
currency amount the exchange rate between the functional currency and
the foreign currency at the date of the cash flow.
26 The cash flows of a foreign subsidiary shall be translated at the exchange

rates between the functional currency and the foreign currency at the
dates of the cash flows.
27 Cash flows denominated in a foreign currency are reported in a manner

consistent with IAS 21 The Effects of Changes in Foreign Exchange Rates. This permits
the use of an exchange rate that approximates the actual rate. For example,
a weighted average exchange rate for a period may be used for recording foreign
currency transactions or the translation of the cash flows of a foreign subsidiary.
However, IAS 21 does not permit use of the exchange rate at the end of the
reporting period when translating the cash flows of a foreign subsidiary.
28 Unrealised gains and losses arising from changes in foreign currency exchange
rates are not cash flows. However, the effect of exchange rate changes on cash
and cash equivalents held or due in a foreign currency is reported in the
statement of cash flows in order to reconcile cash and cash equivalents at the
beginning and the end of the period. This amount is presented separately from
cash flows from operating, investing and financing activities and includes the
differences, if any, had those cash flows been reported at end of period exchange
rates.
29 [Deleted]
30 [Deleted]
Interest and dividends

[Refer: Illustrative Examples, examples A and B]
31 Cash flows from interest and dividends received and paid shall each be
disclosed separately. Each shall be classified in a consistent manner from
period to period as either operating, investing or financing activities.

IAS 7
32 The total amount of interest paid during a period is disclosed in the statement of
cash flows whether it has been recognised as an expense in profit or loss or
capitalised in accordance with IAS 23 Borrowing Costs.
33 Interest paid and interest and dividends received are usually classified as
operating cash flows for a financial institution. However, there is no consensus
on the classification of these cash flows for other entities. Interest paid and
interest and dividends received may be classified as operating cash flows because
they enter into the determination of profit or loss. Alternatively, interest paid
and interest and dividends received may be classified as financing cash flows
and investing cash flows respectively, because they are costs of obtaining
financial resources or returns on investments.
34 Dividends paid may be classified as a financing cash flow because they are a cost
of obtaining financial resources. Alternatively, dividends paid may be classified
as a component of cash flows from operating activities in order to assist users to
determine the ability of an entity to pay dividends out of operating cash flows.
Taxes on income
35 Cash flows arising from taxes on income shall be separately disclosed and
shall be classified as cash flows from operating activities unless they can
be specifically identified with financing and investing activities.
36 Taxes on income arise on transactions that give rise to cash flows that are
classified as operating, investing or financing activities in a statement of cash
flows. While tax expense may be readily identifiable with investing or financing
activities, the related tax cash flows are often impracticable to identify and may
arise in a different period from the cash flows of the underlying transaction.
Therefore, taxes paid are usually classified as cash flows from operating
activities. However, when it is practicable to identify the tax cash flow with an
individual transaction that gives rise to cash flows that are classified as investing
or financing activities the tax cash flow is classified as an investing or financing
activity as appropriate. When tax cash flows are allocated over more than one
class of activity, the total amount of taxes paid is disclosed.
Investments in subsidiaries, associates and joint ventures
37 When accounting for an investment in an associate, a joint venture or a

subsidiary accounted for by use of the equity or cost method, an investor
restricts its reporting in the statement of cash flows to the cash flows between
itself and the investee, for example, to dividends and advances.
38 An entity that reports its interest in an associate or a joint venture using the
equity method includes in its statement of cash flows the cash flows in respect of
its investments in the associate or joint venture, and distributions and other
payments or receipts between it and the associate or joint venture.

IAS 7
Changes in ownership interests in subsidiaries and other

businesses
39 The aggregate cash flows arising from obtaining or losing control of

subsidiaries or other businesses shall be presented separately and
classified as investing activities.
40 An entity shall disclose, in aggregate, in respect of both obtaining and

losing control of subsidiaries or other businesses during the period each
of the following:
(a) the total consideration paid or received;
(b) the portion of the consideration consisting of cash and cash

equivalents;
(c) the amount of cash and cash equivalents in the subsidiaries or

other businesses over which control is obtained or lost; and
(d) the amount of the assets and liabilities other than cash or cash
equivalents in the subsidiaries or other businesses over which
control is obtained or lost, summarised by each major category.
40A An investment entity, as defined in IFRS 10 Consolidated Financial Statements, need

not apply paragraphs 40(c) or 40(d) to an investment in a subsidiary that is
required to be measured at fair value through profit or loss.
41 The separate presentation of the cash flow effects of obtaining or losing control
of subsidiaries or other businesses as single line items, together with the
separate disclosure of the amounts of assets and liabilities acquired or disposed
of, helps to distinguish those cash flows from the cash flows arising from the
other operating, investing and financing activities. The cash flow effects of
losing control are not deducted from those of obtaining control.
42 The aggregate amount of the cash paid or received as consideration for

obtaining or losing control of subsidiaries or other businesses is reported in the
statement of cash flows net of cash and cash equivalents acquired or disposed of
as part of such transactions, events or changes in circumstances.
42A Cash flows arising from changes in ownership interests in a subsidiary that do
not result in a loss of control shall be classified as cash flows from financing
activities, unless the subsidiary is held by an investment entity, as defined in
IFRS 10, and is required to be measured at fair value through profit or loss.
42B Changes in ownership interests in a subsidiary that do not result in a loss of

control, such as the subsequent purchase or sale by a parent of a subsidiary’s
equity instruments, are accounted for as equity transactions (see IFRS 10), unless
the subsidiary is held by an investment entity and is required to be measured at
fair value through profit or loss. [Refer: IFRS 10 paragraph 23] Accordingly, the
resulting cash flows are classified in the same way as other transactions with
owners described in paragraph 17.

IAS 7
Non-cash transactions
[Refer: Illustrative Examples, example A note B]
43 Investing and financing transactions that do not require the use of cash
or cash equivalents shall be excluded from a statement of cash flows.
Such transactions shall be disclosed elsewhere in the financial statements
in a way that provides all the relevant information about these investing
and financing activities.
44 Many investing and financing activities do not have a direct impact on current
cash flows although they do affect the capital and asset structure of an entity.
The exclusion of non-cash transactions from the statement of cash flows is
consistent with the objective of a statement of cash flows as these items do not
involve cash flows in the current period. Examples of non-cash transactions are:
(a) the acquisition of assets either by assuming directly related liabilities or

by means of a lease; [Refer: paragraph 59 for effective date]
(b) the acquisition of an entity by means of an equity issue; and
(c) the conversion of debt to equity.
Changes in liabilities arising from financing activities

[Refer: Illustrative Examples, example A note E and example C]
44A An entity shall provide disclosures that enable users of financial

statements to evaluate changes in liabilities arising from financing
activities, including both changes arising from cash flows and non-cash
changes. [Refer: Basis for Conclusions paragraphs BC9–BC10 and BC15–BC16]
44B To the extent necessary to satisfy the requirement in paragraph 44A, an entity
shall disclose the following changes in liabilities arising from financing
activities:
(a) changes from financing cash flows;
(b) changes arising from obtaining or losing control of subsidiaries or other

businesses;
(c) the effect of changes in foreign exchange rates;
(d) changes in fair values; and

(e) other changes.
[Refer: Basis for Conclusions paragraphs BC11–BC13]
44C Liabilities arising from financing activities are liabilities for which cash flows
were, or future cash flows will be, classified in the statement of cash flows as
cash flows from financing activities. In addition, the disclosure requirement in
paragraph 44A also applies to changes in financial assets (for example, assets
that hedge liabilities arising from financing activities) if cash flows from those
financial assets were, or future cash flows will be, included in cash flows from
financing activities. [Refer: Basis for Conclusions paragraph BC22]
44D One way to fulfil the disclosure requirement in paragraph 44A is by providing a
reconciliation between the opening and closing balances in the statement of

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financial position for liabilities arising from financing activities, including the
changes identified in paragraph 44B. [Refer: Basis for Conclusions paragraphs
BC17–BC19] Where an entity discloses such a reconciliation, it shall provide
sufficient information to enable users of the financial statements to link items
included in the reconciliation to the statement of financial position and the
statement of cash flows.
44E If an entity provides the disclosure required by paragraph 44A in combination

with disclosures of changes in other assets and liabilities, it shall disclose the
changes in liabilities arising from financing activities separately from changes
in those other assets and liabilities. [Refer: Basis for Conclusions paragraphs
BC20–BC21]
Components of cash and cash equivalents

[Refer: Illustrative Examples, example A note C]
45 An entity shall disclose the components of cash and cash equivalents and
shall present a reconciliation of the amounts in its statement of cash
flows with the equivalent items reported in the statement of financial
position.
46 In view of the variety of cash management practices and banking arrangements

around the world and in order to comply with IAS 1 Presentation of Financial
Statements, an entity discloses the policy which it adopts in determining the
composition of cash and cash equivalents.
47 The effect of any change in the policy for determining components of cash and
cash equivalents, for example, a change in the classification of financial
instruments previously considered to be part of an entity’s investment portfolio,
is reported in accordance with IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors.
Other disclosures
48 An entity shall disclose, together with a commentary by management, the

amount of significant cash and cash equivalent balances held by the
entity that are not available for use by the group.
[Refer: Illustrative Examples, example A note C]
49 There are various circumstances in which cash and cash equivalent balances
held by an entity are not available for use by the group. Examples include cash
and cash equivalent balances held by a subsidiary that operates in a country
where exchange controls or other legal restrictions apply when the balances are
not available for general use by the parent or other subsidiaries.
50 Additional information may be relevant to users [Refer: Conceptual Framework

paragraphs OB2–OB10 and QC32] in understanding the financial position [Refer:
Conceptual Framework paragraphs 4.4–4.7] and liquidity of an entity. Disclosure of
this information, together with a commentary by management, is encouraged
and may include:

IAS 7
(a) the amount of undrawn borrowing facilities that may be available for
future operating activities and to settle capital commitments, indicating
any restrictions on the use of these facilities;
(b) [deleted]
(c) the aggregate amount of cash flows that represent increases in operating
capacity separately from those cash flows that are required to maintain
operating capacity; and
(d) the amount of the cash flows arising from the operating, investing and
financing activities of each reportable segment [Refer: IFRS 8 paragraph 11]
(see IFRS 8 Operating Segments).
51 The separate disclosure of cash flows that represent increases in operating

capacity and cash flows that are required to maintain operating capacity is
useful in enabling the user to determine whether the entity is investing
adequately in the maintenance of its operating capacity. An entity that does not
invest adequately in the maintenance of its operating capacity may be
prejudicing future profitability for the sake of current liquidity and
distributions to owners.
52 The disclosure of segmental cash flows enables users [Refer: Conceptual Framework
paragraphs OB2–OB10 and QC32] to obtain a better understanding of the
relationship between the cash flows of the business as a whole and those of its
component parts and the availability and variability of segmental cash flows.
[Refer: Illustrative Examples, example A note D]
Effective date
53 This Standard becomes operative for financial statements covering periods

beginning on or after 1 January 1994.
54 IAS 27 (as amended in 2008) amended paragraphs 39–42 and added

paragraphs 42A and 42B. An entity shall apply those amendments for annual
periods beginning on or after 1 July 2009. If an entity applies IAS 27 (amended
2008) for an earlier period, the amendments shall be applied for that earlier
period. The amendments shall be applied retrospectively.
55 Paragraph 14 was amended by Improvements to IFRSs issued in May 2008. An

entity shall apply that amendment for annual periods beginning on or after
1 January 2009. Earlier application is permitted. If an entity applies the
amendment for an earlier period it shall disclose that fact and apply
paragraph 68A of IAS 16.
56 Paragraph 16 was amended by Improvements to IFRSs issued in April 2009. An

entity shall apply that amendment for annual periods beginning on or after
1 January 2010. Earlier application is permitted. If an entity applies the
amendment for an earlier period it shall disclose that fact.
57 IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended

paragraphs 37, 38 and 42B and deleted paragraph 50(b). An entity shall apply
those amendments when it applies IFRS 10 and IFRS 11.

IAS 7
58 Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27), issued in October
2012, amended paragraphs 42A and 42B and added paragraph 40A. An entity
shall apply those amendments for annual periods beginning on or after
1 January 2014. Earlier application of Investment Entities is permitted. If an entity
applies those amendments earlier it shall also apply all amendments included in
Investment Entities at the same time.
59 IFRS 16 Leases, issued in January 2016, amended paragraphs 17 and 44. An entity
shall apply those amendments when it applies IFRS 16.
60 Disclosure Initiative (Amendments to IAS 7), issued in January 2016, added

paragraphs 44A–44E. An entity shall apply those amendments for annual
periods beginning on or after 1 January 2017. [Refer: Basis for Conclusions
paragraph BC26] Earlier application is permitted. When the entity first applies
those amendments, it is not required to provide comparative information for
preceding periods. [Refer: Basis for Conclusions paragraph BC27]
61 IFRS 17 Insurance Contracts, issued in May 2017, amended paragraph 14. An entity
shall apply that amendment when it applies IFRS 17.

IAS 7
Approval by the Board of Disclosure Initiative (Amendments

to IAS 7) issued in January 2016
Disclosure Initiative (Amendments to IAS 7) was approved for issue by thirteen of the fourteen
members of the International Accounting Standards Board. Mr Ochi dissented. His
dissenting opinion is set out after the Basis for Conclusions.
Hans Hoogervorst Chairman
Ian Mackintosh Vice-Chairman

Stephen Cooper
Philippe Danjou
Martin Edelmann
Patrick Finnegan
Amaro Gomes
Gary Kabureck
Suzanne Lloyd
Takatsugu Ochi
Darrel Scott
Chungwoo Suh
Mary Tokar
Wei-Guo Zhang

IAS 7
IASB documents published to accompany
IAS 7

The text of the unaccompanied standard, IAS 7, is contained in Part A of this edition. Its
effective date when issued was 1 January 1994. The text of the Basis for Conclusions on
IAS 7 is contained in Part C of this edition. This part presents the following documents:
ILLUSTRATIVE EXAMPLES
A Statement of cash flows for an entity other than a financial institution
B Statement of cash flows for a financial institution
姝 IFRS Foundation B579

IAS 7 IE
Illustrative examples
These illustrative examples accompany, but are not part of, IAS 7.
A Statement of cash flows for an entity other than a financial

institution
1 The examples show only current period amounts. Corresponding amounts for
the preceding period are required to be presented in accordance with IAS 1
Presentation of Financial Statements.
2 Information from the statement of comprehensive income and statement of

financial position is provided to show how the statements of cash flows under
the direct method and indirect method have been derived. Neither the
statement of comprehensive income nor the statement of financial position is
presented in conformity with the disclosure and presentation requirements of
other Standards.
3 The following additional information is also relevant for the preparation of the
statements of cash flows:
● all of the shares of a subsidiary were acquired for 590. The fair values of
assets acquired and liabilities assumed were as follows:
Inventories 100
Accounts receivable 100
Cash 40
Property, plant and equipment 650
Trade payables 100
Long-term debt 200
● 250 was raised from the issue of share capital and a further 250 was
raised from long-term borrowings.
● interest expense was 400, of which 170 was paid during the period. Also,
100 relating to interest expense of the prior period was paid during the
period.
● dividends paid were 1,200.
● the liability for tax at the beginning and end of the period was 1,000 and
400 respectively. During the period, a further 200 tax was provided for.
Withholding tax on dividends received amounted to 100.
● during the period, the group acquired property, plant and equipment
and right-of-use assets relating to property, plant and equipment with an
aggregate cost of 1,250, of which 900 related to right-of-use assets. Cash
payments of 350 were made to purchase property, plant and equipment.
● plant with original cost of 80 and accumulated depreciation of 60 was
sold for 20.
● accounts receivable as at the end of 20X2 include 100 of interest

receivable.
B580 姝 IFRS Foundation

IAS 7 IE
Consolidated statement of comprehensive income for the period ended

20X2(a)
Sales 30,650
Cost of sales (26,000)
Gross profit 4,650

Depreciation (450)
Administrative and selling expenses (910)
Interest expense (400)
Investment income 500
Foreign exchange loss (40)
Profit before taxation 3,350

Taxes on income (300)
Profit 3,050
(a) The entity did not recognise any components of other comprehensive income in the
period ended 20X2
Consolidated statement of financial position as at end of 20X2
20X2 20X1
Assets
Cash and cash equivalents 230 160
Accounts receivable 1,900 1,200
Inventory 1,000 1,950
Portfolio investments 2,500 2,500
Property, plant and equipment
at cost 3,730 1,910
Accumulated depreciation (1,450) (1,060)
Property, plant and equipment

net 2,280 850
Total assets 7,910 6,660
Liabilities
Trade payables 250 1,890
Interest payable 230 100
Income taxes payable 400 1,000
Long-term debt 2,300 1,040
Total liabilities 3,180 4,030
continued...

IAS 7 IE
...continued
Consolidated statement of financial position as at end of 20X2
20X2 20X1
Shareholders’ equity
Share capital 1,500 1,250
Retained earnings 3,230 1,380
Total shareholders’ equity 4,730 2,630
Total liabilities and

shareholders’ equity 7,910 6,660
Direct method statement of cash flows (paragraph 18(a))
20X2
Cash flows from operating activities
Cash receipts from customers [Refer: paragraph 14] 30,150
Cash paid to suppliers and employees
[Refer: paragraph 14] (27,600)
Cash generated from operations 2,550

Interest paid [Refer: paragraphs 31–33] (270)
Income taxes paid [Refer: paragraphs 35 and 36] (900)
Net cash from operating activities 1,380
Cash flows from investing activities

Acquisition of subsidiary X, net of cash acquired
(Note A) [Refer: paragraphs 39 and 42] (550)
Purchase of property, plant and equipment (Note B)
[Refer: paragraph 21] (350)
Proceeds from sale of equipment [Refer:
paragraph 21] 20
Interest received [Refer: paragraphs 31 and 33] 200
Dividends received [Refer: paragraphs 31 and 33] 200
Net cash used in investing activities (480)
continued...

IAS 7 IE
...continued
Direct method statement of cash flows (paragraph 18(a))
20X2
Cash flows from financing activities
Proceeds from issue of share capital
[Refer: paragraph 21] 250
Proceeds from long-term borrowings
Payment of lease liabilities [Refer: paragraph 21] (90)
Dividends paid(a) [Refer: paragraphs 31 and 34] (1,200)
Net cash used in financing activities (790)
Net increase in cash and cash equivalents 110

Cash and cash equivalents at beginning of
period (Note C) 120
Cash and cash equivalents at end of period

(Note C) 230
(a) This could also be shown as an operating cash flow.

IAS 7 IE
Indirect method statement of cash flows (paragraph 18(b))
20X2
Profit before taxation [Refer: paragraph 20] 3,350
Adjustments for:
Depreciation [Refer: paragraph 20(b)] 450
Foreign exchange loss [Refer: paragraph 20(b)
and (c)] 40
Investment income [Refer: paragraph 20(c)] (500)
Interest expense 400
3,740
Increase in trade and other receivables
[Refer: paragraph 20(a)] (500)
Decrease in inventories [Refer: paragraph 20(a)] 1,050
Decrease in trade payables [Refer:
paragraph 20(a)] (1,740)
Cash generated from operations [Refer: paragraph 20] 2,550

Interest paid [Refer: paragraphs 31–33] (270)
Cash flows from investing activities [Refer:

paragraph 10]
Acquisition of subsidiary X net of cash acquired
(Note A) [Refer: paragraphs 39 and 42] (550)
Purchase of property, plant and equipment (Note B)
Proceeds from sale of equipment [Refer:
paragraph 21] 20
Net cash used in investing activities (480)
continued...

IAS 7 IE
...continued
Indirect method statement of cash flows (paragraph 18(b))
20X2
Proceeds from issue of share capital
Proceeds from long-term borrowings
Payment of lease liabilities [Refer: paragraph 21] (90)
Dividends paid(a) [Refer: paragraphs 31 and 34] (1,200)
Net cash used in financing activities (790)
Net increase in cash and cash equivalents 110

period (Note C) 120
Cash and cash equivalents at end of period

(Note C) 230
(a) This could also be shown as an operating cash flow.
Notes to the statement of cash flows (direct method and

indirect method)
A. Obtaining control of subsidiary

During the period the Group obtained control of subsidiary X. The fair values of assets
acquired and liabilities assumed were as follows [Refer: paragraph 40]:
Cash 40
Inventories 100
Accounts receivable 100
Property, plant and equipment 650
Trade payables (100)
Long-term debt (200)
Total purchase price paid in cash 590

Less: Cash of subsidiary X acquired (40)
Cash paid to obtain control net of cash acquired 550
B. Property, plant and equipment

During the period, the Group acquired property, plant and equipment and right-of-use
assets relating to property, plant and equipment with an aggregate cost of 1,250, of which
900 related to right-of-use assets. Cash payments of 350 were made to purchase property,
plant and equipment [Refer: paragraphs 43 and 44].

IAS 7 IE
C. Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and balances with banks, and
investments in money market instruments. Cash and cash equivalents included in the
statement of cash flows comprise the following amounts in the statement of financial
position [Refer: paragraphs 45–47]:
20X2 20X1
Cash on hand and balances with banks 40 25
Short-term investments 190 135
Cash and cash equivalents as previously reported 230 160

Effect of exchange rate changes – (40)
Cash and cash equivalents as restated 230 120
Cash and cash equivalents at the end of the period include deposits with banks of 100 held
by a subsidiary which are not freely remissible to the holding company because of currency
exchange restrictions. [Refer: paragraph 48]
The Group has undrawn borrowing facilities of 2,000 of which 700 may be used only for
future expansion. [Refer: paragraphs 48 and 50(a)]
D. Segment information
[Refer: paragraphs 50(d) and 52]
Segment A Segment B Total

Cash flows from:
Operating activities 1,520 (140) 1,380
Investing activities (640) 160 (480)
Financing activities (570) (220) (790)
310 (200) 110
E. Reconciliation of liabilities arising from financing activities

[Refer: paragraphs 44A and 44B]
20X1 Cash flows Non-cash changes 20X2

Acquisition New leases
Long-term borrowings 1,040 250 200 – 1,490
Lease liabilities – (90) – 900 810
Long-term debt 1,040 160 200 900 2,300

IAS 7 IE
Alternative presentation (indirect method)

As an alternative, in an indirect method statement of cash flows, operating profit before

working capital changes is sometimes presented as follows:
Revenues excluding investment income 30,650

Operating expense excluding depreciation (26,910)
Operating profit before working capital changes 3,740
B Statement of cash flows for a financial institution

1 The example shows only current period amounts. Comparative amounts for the
preceding period are required to be presented in accordance with IAS 1
Presentation of Financial Statements.
2 The example is presented using the direct method.

IAS 7 IE
20X2
Interest and commission receipts [Refer:
paragraph 33] 28,447
Interest payments [Refer: paragraph 33] (23,463)
Recoveries on loans previously written off
Cash payments to employees and suppliers
4,224
(Increase) decrease in operating assets:

Short-term funds [Refer: paragraphs 15 and 24] (650)
Deposits held for regulatory or monetary control
purposes [Refer: paragraphs 15 and 24] 234
Funds advanced to customers [Refer: paragraphs 15
and 24] (288)
Net increase in credit card receivables
[Refer: paragraphs 15 and 24] (360)
Other short-term negotiable securities
[Refer: paragraphs 15 and 24] (120)
Increase (decrease) in operating liabilities:

Deposits from customers [Refer: paragraphs 15 and 24] 600
Negotiable certificates of deposit [Refer: paragraphs
15 and 24] (200)
Net cash from operating activities before income tax 3,440

Cash flows from investing activities

Disposal of subsidiary Y [Refer: paragraphs 39–42B] 50
Proceeds from sales of non-dealing securities
[Refer: paragraph 21] 1,200
Purchase of non-dealing securities [Refer:
paragraph 21] (600)
Purchase of property, plant and equipment
Net cash from investing activities 650
continued...

IAS 7 IE
...continued
20X2
Issue of loan capital [Refer: paragraph 21] 1,000
Issue of preference shares by subsidiary
undertaking [Refer: paragraph 21] 800
Repayment of long-term borrowings
Net decrease in other borrowings [Refer:
paragraph 21] (1,000)
Dividends paid [Refer: paragraphs 31 and 34] (400)
Net cash from financing activities 200

Effects of exchange rate changes on cash and cash
equivalents [Refer: paragraph 28] 600
Net increase in cash and cash equivalents 4,790

period 4,050
Cash and cash equivalents at end of period 8,840
C Reconciliation of liabilities arising from financing activities

[Refer: paragraphs 44A and 44B]
1 This example illustrates one possible way of providing the disclosures required by
paragraphs 44A–44E.
2 The example shows only current period amounts. Corresponding amounts for the
preceding period are required to be presented in accordance with IAS 1 Presentation of
Financial Statements.
20X1 Cash Non-cash changes 20X2

flows
Acquisition Foreign Fair value

exchange changes
movement
Long-term borrowings 22,000 (1,000) – – – 21,000

Short-term borrowings 10,000 (500) – 200 – 9,700
Lease liabilities 4,000 (800) 300 – – 3,500
Assets held to hedge
long-term borrowings (675) 150 – – (25) (550)
Total liabilities from

financing activities 35,325 (2,150) 300 200 (25) 33,650

IAS 7
IASB documents published to accompany
IAS 7

The text of the unaccompanied standard, IAS 7, is contained in Part A of this edition. Its
effective date when issued was 1 January 1994. The text of the Accompanying Guidance on
IAS 7 is contained in Part B of this edition. This part presents the following documents:
BASIS FOR CONCLUSIONS

DISSENTING OPINION
姝 IFRS Foundation C1511

IAS 7 BC
Basis for Conclusions on

IAS 7 Statement of Cash Flows
This Basis for Conclusions accompanies, but is not part of, IAS 7.
BC1 This Basis for Conclusions summarises the considerations of the International
Accounting Standards Board in reaching its conclusions on amending IAS 7
Statement of Cash Flows as part of Improvements to IFRSs issued in April 2009.
Individual Board members gave greater weight to some factors than to others.
BC2 IAS 7 was developed by the International Accounting Standards Committee in

1992 and was not accompanied by a Basis for Conclusions. This Basis refers to
clarification of guidance on classification of cash flows from investing activities.
Classification of expenditures on unrecognised assets
BC3 In 2008 the International Financial Reporting Interpretations Committee (IFRIC)

reported to the Board that practice differed for the classification of cash flows
for expenditures incurred with the objective of generating future cash flows
when those expenditures are not recognised as assets in accordance with IFRSs.
Some entities classified such expenditures as cash flows from operating
activities and others classified them as investing activities. Examples of such
expenditures are those for exploration and evaluation activities, which IFRS 6
Exploration for and Evaluation of Mineral Resources permits to be recognised as either
an asset or an expense depending on the entity’s previous accounting policies
for those expenditures. Expenditures on advertising and promotional activities,
staff training, and research and development could also raise the same issue.
[Refer: IFRS 6 paragraph 9]
BC4 The IFRIC decided not to add this issue to its agenda but recommended that the
Board should amend IAS 7 to state explicitly that only an expenditure that
results in a recognised asset can be classified as a cash flow from investing
activity.
BC5 In 2008, as part of its annual improvements project, the Board considered the
principles in IAS 7, specifically guidance on the treatment of such expenditures
in the statement of cash flows. The Board noted that even though paragraphs 14
and 16 of IAS 7 appear to be clear that only expenditure that results in the
recognition of an asset should be classified as cash flows from investing
activities, the wording is not definitive in this respect. Some might have
misinterpreted the reference in paragraph 11 of IAS 7 for an entity to assess
classification by activity that is most appropriate to its business to imply that the
assessment is an accounting policy choice.
BC6 Consequently, in Improvements to IFRSs issued in April 2009, the Board removed
the potential misinterpretation by amending paragraph 16 of IAS 7 to state
explicitly that only an expenditure that results in a recognised asset can be
classified as a cash flow from investing activities.
BC7 The Board concluded that this amendment better aligns the classification of
cash flows from investing activities in the statement of cash flows and the
C1512 姝 IFRS Foundation

IAS 7 BC
presentation of recognised assets in the statement of financial position, reduces

divergence in practice and, therefore, results in financial statements that are
easier for users to understand.
BC8 The Board also amended the Basis for Conclusions on IFRS 6 to clarify the Board’s
view that the exemption in IFRS 6 applies only to recognition and measurement
of exploration and evaluation assets, not to the classification of related
expenditures in the statement of cash flows, for the same reasons set out in
paragraph BC7.
[Refer: IFRS 6 Basis for Conclusions paragraphs BC23A and BC23B]
Changes in liabilities arising from financing activities

(paragraphs 44A–44E)
Background to the January 2016 Amendments

BC9 In January 2016 the Board amended IAS 7 to require entities to provide
disclosures that enable users of financial statements to evaluate changes in
liabilities arising from financing activities. The amendments were in response
to requests from users, including those received at the Board’s Financial Reporting
Disclosure Discussion Forum in January 2013 and reflected in the resulting Feedback
Statement (‘the Feedback Statement’), which was issued in May 2013. Users
highlighted that understanding an entity’s cash flows is critical to their analysis
and that there is a need for improved disclosures about an entity’s debt,
including changes in debt during the reporting period. The Feedback Statement
noted that users had been consistently asking for the Board to introduce a
requirement for entities to disclose and explain a net debt reconciliation.
BC10 In early 2014, to understand the reasons for their requests for more disclosure
about net debt, the Board undertook a survey of investors. The survey sought
information about why investors seek to understand the changes in debt
between the beginning and the end of a reporting period. The survey also
sought input on disclosures about cash and cash equivalents. On the basis of the
survey, the Board identified that investors use a net debt reconciliation in their
analysis of the entity:
(a) to check their understanding of the entity’s cash flows, because it

provides a reconciliation between the statement of financial position
and the statement of cash flows;
(b) to improve their confidence in forecasting the entity’s future cash flows
when they can use a reconciliation to check their understanding of the
entity’s cash flows;
(c) to provide information about the entity’s sources of finance and how
those sources have been used over time; and
(d) to help them understand the entity’s exposure to risks associated with
financing.
BC11 The survey helped the Board to understand why investors were calling for
improved disclosures about changes in debt during the reporting period. The
Board noted that one challenge in responding to this need was that debt is not
defined or required to be disclosed in current IFRS Standards. The Board noted

IAS 7 BC
that finding a commonly agreed definition of debt would be difficult. However,

the Board decided that it could use the definition of financing activities in IAS 7.
It therefore decided to propose a requirement to disclose a reconciliation
between the amounts in the opening and the amounts in the closing statements
of financial position for liabilities for which cash flows were, or future cash
flows will be, classified as financing activities in the statement of cash flows.
BC12 IAS 7 defines financing activities as activities that result in changes in the size
and composition of the contributed equity and borrowings of the entity. The
Board proposed that a reconciliation of liabilities arising from financing
activities would provide the information about debt that users of financial
statements were requesting.
BC13 In December 2014 the Board published an Exposure Draft Disclosure Initiative
(Proposed amendments to IAS 7) (‘the 2014 Exposure Draft’) seeking views on the
proposals for a reconciliation of liabilities arising from financing activities.
Feedback on the proposals set out in the Exposure Draft

BC14 The feedback received on the 2014 Exposure Draft provided evidence that the
disclosure would provide users of financial statements with the information
they were seeking in order to analyse an entity’s cash flows. The Board decided
to finalise the amendments to IAS 7 (‘the 2016 Amendments’); paragraphs
BC15–BC24 set out how the Board responded to the feedback received on the
2014 Exposure Draft.
The objective of the disclosure

BC15 Feedback on the 2014 Exposure Draft noted that the proposal did not set out a
disclosure objective, and consequently it was not sufficiently clear how entities
would determine the most appropriate way to provide the required disclosure.
The Board agreed with this feedback and included an objective within the
requirement set out in paragraph 44A of the 2016 Amendments.
BC16 In setting the disclosure objective the Board decided the objective should reflect
the needs of the users of financial statements, including those summarised in
paragraph BC10.
Application of the 2016 Amendments to financial institutions

BC17 Some respondents to the 2014 Exposure Draft from financial institutions stated
that the proposals would provide little or no relevant information to users of
their financial statements because:
(a) only some of the sources of finance for a financial institution are
classified as ‘financing activities’ (for example, deposits from customers
provide finance but in practice the resulting cash flows are typically
classified as operating cash flows). A reconciliation may therefore
provide an incomplete picture of the changes in the financing structure
of a financial institution; and
(b) other disclosure requirements (for example, comprehensive regulatory

disclosure requirements) may already result in sufficient disclosure
about an entity’s financing structure.

IAS 7 BC
BC18 After taking into consideration the feedback from respondents from financial
institutions, the Board decided that the disclosure requirement could be
satisfied in various ways, and not only by providing a reconciliation. The Board
noted that when an entity is considering whether it has fulfilled the disclosure
requirement, it should take into consideration:
(a) the extent to which information about changes in liabilities arising from
financing activities provides relevant information to its users,
considering the needs of users summarised in paragraph BC10; and
(b) whether the entity is satisfying the disclosure requirement through
other disclosures included in the financial statements.
BC19 The Board therefore decided that a reconciliation between the opening and
closing balances in the statement of financial position for liabilities arising from
financing activities is one way to fulfil the disclosure requirement but should
not be a mandatory format.
Information that supplements the disclosures

BC20 Some respondents to the 2014 Exposure Draft expressed a concern that the
proposals in the Exposure Draft were too restrictive because, in their view:
(a) the proposed disclosure would not include liabilities that an entity
considers to be sources of finance although the entity does not classify
them as financing activities (for example, pension liabilities); and
(b) entities that already provided a net debt reconciliation (a reconciliation

of movements in a net balance comprising debt less cash and cash
equivalents) would be prevented from providing such a reconciliation,
even if users would find it useful.
BC21 The Board did not intend to prevent entities from providing information
required by paragraph 44A in a format that combines it with information about
changes in other assets and liabilities. For example, an entity could provide that
information as part of a net debt reconciliation, as described in
paragraph BC20(b). To ensure users can identify the information required by
paragraph 44A, the format selected needs to distinguish that information from
information about changes in other assets and liabilities. In finalising the
2016 Amendments, the Board clarified these points in paragraph 44E.
Financial assets
BC22 Some respondents to the 2014 Exposure Draft asked the Board to clarify whether
changes in financial assets held to hedge financial liabilities could also be
included in the disclosure required by the 2016 Amendments. The Board noted
that paragraph G.2 of the Guidance on implementing IFRS 9 Financial Instruments
states that cash flows arising from a hedging instrument are classified as
operating, investing or financing activities, on the basis of the classification of
the cash flows arising from the hedged item. Consequently, the Board clarified
in paragraph 44C that changes in financial assets held to hedge financial
liabilities are included in the disclosure required by paragraph 44A.

IAS 7 BC
Cost-benefit considerations
BC23 The Board considered the feedback received on perceived costs and benefits in
finalising the 2016 Amendments. The Board noted that there will be initial costs
for preparers to update information technology systems to enable changes in
liabilities arising from financing activities to be tracked and collated. The Board
also acknowledged that disclosing additional information could result in costs
relating to extending the existing internal controls and audit processes of the
entity. However, the Board noted that much of the information is already
available to preparers. It also noted that the 2016 Amendments do not change
the recognition or measurement for liabilities arising from financing activities;
instead, they track changes in those items. Consequently, the Board concluded
that it does not foresee any significant ongoing cost related to providing this
information, and that the informational benefits to users of financial statements
would outweigh the costs.
Illustrative example
BC24 Some respondents to the 2014 Exposure Draft stated that the example proposed
within the Exposure Draft was too simplistic and might not help preparers in
disclosing relevant information, because in practice the reconciliation would be
more detailed. To address this feedback, the Board inserted a further example in
the illustrative examples accompanying IAS 7.
Other disclosures
BC25 To supplement the current disclosure requirements in paragraph 48 of IAS 7 the
2014 Exposure Draft proposed additional disclosure requirements about an
entity’s liquidity such as restrictions that affect an entity’s decision to use cash
and cash equivalent balances. However, in the light of the responses, the Board
decided that further work is needed before it can determine whether and how to
finalise requirements arising from that proposal. The Board decided to continue
that work without delaying the improvements to financial reporting that it
expects will result from adding paragraphs 44A–44E to IAS 7. The Board may
also, in due course, consider adding to its technical work programme a project
that would look at liquidity disclosures more broadly.
Transition and effective date
Amendments to IAS 7
BC26 The Board concluded that timely application of the 2016 Amendments would
respond to a long-standing request from users of financial statements. Thus, the
Board decided that the 2016 Amendments should be applied for annual
reporting periods beginning on or after 1 January 2017, with early application
permitted.
BC27 Because the 2016 Amendments were issued in January 2016, which is less than
one year before the beginning of the period when some entities could be
required to apply them, the Board exempted entities from providing
comparative information when they first apply the amendments.

IAS 7 BC
Dissenting opinion
Dissent of Mr Takatsugu Ochi from Disclosure Initiative
(Amendments to IAS 7)
DO1 Mr Ochi voted against the publication of Disclosure Initiative (Amendments to
IAS 7) (the 2016 Amendments). The reasons for his dissent are set out below.
DO2 Mr Ochi believes that financial statements that reflect the 2016 Amendments
may provide incomplete information about an entity’s management of liquidity.
The objective of the 2016 Amendments is to require disclosures that enable users
to evaluate changes in liabilities arising from financing activities, including
both changes arising from cash flows and non-cash changes. However, Mr Ochi
thinks that users of financial statements are seeking clearer information about
entities’ management of liquidity risk. Consequently, he thinks that the
information provided by the 2016 Amendments will not meet users’ needs.
Mr Ochi thinks that the Board has issued these amendments without setting a
clear vision of overall improvements to the disclosure about an entity’s liquidity
risk management. He thinks that this could confuse and mislead users of
financial statements.
DO3 The objective mentioned in paragraph DO2 refers to liabilities arising from
financing activities. Paragraph 44C specifies that those liabilities are liabilities
for which cash flows were, or future cash flows will be, classified in the
statement of cash flows as cash flows from financing activities. However,
Mr Ochi thinks that specifying the scope of the disclosure requirement in this
way does not capture the information that users need. This is because changes
in liabilities arising from financing activities are different from the information
used to assess liquidity risk management. Because IAS 7 permits an entity to
classify some cash flows (such as interest payments) as either operating or
financing, the understanding of what constitutes changes in liabilities arising
from financing activities may vary among preparers. In Mr Ochi’s view,
preparers may have a more precise understanding about what constitutes
information on liquidity risk than simply understanding changes in liabilities
arising from financing activities.
DO4 Mr Ochi also thinks that if an entity provides the disclosures required by
paragraph 44A in combination with disclosure of changes in the amount of cash
and cash equivalents and does not disclose information about the location and
availability of the cash and cash equivalents, the disclosure is sometimes
irrelevant to how an entity manages liquidity. If users expect to obtain a full
picture of an entity’s liquidity risk management as a result of the
2016 Amendments, they may be confused and misled.
DO5 Mr Ochi thinks that providing the disclosure may require excessive work and
hence may be inefficient from a preparer’s point of view. He notes that the
Board may conduct research regarding the effectiveness of IAS 7. Because he
regards IAS 7 as having some significant shortcomings, he believes that issuing
amendments based on the existing statement of cash flows is not a worthwhile
endeavour. He also thinks that it could reduce the clarity of the statement of
cash flows.

IAS 7 BC
DO6 Mr Ochi also has a significant concern regarding the costs required to prepare
the disclosure. Although the 2016 Amendments are disclosure-only
amendments, all reporting entities will need to consider providing this
disclosure. For this disclosure, an entity may be required to adjust items already
presented as operating and financing activities in a statement of cash flows (for
example, interest payments that are classified as operating activities), which
may require system changes. Concurrently, an entity may also have to initiate
system changes to prepare for applying IFRS 9 Financial Instruments and
IFRS 15 Revenue from Contracts with Customers (both effective on 1 January 2018) as
well as IFRS 16 Leases (effective on 1 January 2019). Mr Ochi believes that the
costs that will be incurred by entities as a consequence of those other changes
will be considerable and he thinks that this fact is not reflected in the
conclusion the Board had reached as a consequence of its assessment of costs
pertaining to this disclosure. Taking these matters into consideration, Mr Ochi
believes that the costs of the 2016 Amendments will outweigh the benefits.

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IFRS Red Book - IAS 7 Statement of Cash Flows

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IAS 7

Statement of Cash Flows

姝 IFRS Foundation A1023

FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION

BASIS FOR CONCLUSIONS

A1024 姝 IFRS Foundation

International Accounting Standard 7 Statement of Cash Flows (IAS 7) is set out in

姝 IFRS Foundation A1025

International Accounting Standard 7

1 An entity shall prepare a statement of cash flows in accordance with the

2 This Standard supersedes IAS 7 Statement of Changes in Financial Position, approved

3 Users of an entity’s financial statements are interested in how the entity

Benefits of cash flow information

A1026 姝 IFRS Foundation

5 Historical cash flow information is often used as an indicator of the amount,

Cash and cash equivalents

姝 IFRS Foundation A1027

8 Bank borrowings are generally considered to be financing activities. However, in

Presentation of a statement of cash flowsE3, E4

A1028 姝 IFRS Foundation

(d) cash payments to and on behalf of employees;

姝 IFRS Foundation A1029

(c) cash payments to acquire equity or debt instruments of other entities

A1030 姝 IFRS Foundation

(b) cash payments to owners to acquire or redeem the entity’s shares;

(d) cash repayments of amounts borrowed; and

Reporting cash flows from operating activities

(a) the direct method, [Refer: paragraph 19 and Illustrative Examples,

(i) changes during the period in inventories and operating

姝 IFRS Foundation A1031

(ii) other non-cash items; and

Reporting cash flows from investing and financing activities

Reporting cash flows on a net basis

22 Cash flows arising from the following operating, investing or financing

23 Examples of cash receipts and payments referred to in paragraph 22(a) are:

(b) funds held for customers by an investment entity; and

A1032 姝 IFRS Foundation

24 Cash flows arising from each of the following activities of a financial

Foreign currency cash flows

25 Cash flows arising from transactions in a foreign currency shall be

26 The cash flows of a foreign subsidiary shall be translated at the exchange

27 Cash flows denominated in a foreign currency are reported in a manner

Interest and dividends

姝 IFRS Foundation A1033

Investments in subsidiaries, associates and joint ventures

37 When accounting for an investment in an associate, a joint venture or a

A1034 姝 IFRS Foundation

Changes in ownership interests in subsidiaries and other

39 The aggregate cash flows arising from obtaining or losing control of

40 An entity shall disclose, in aggregate, in respect of both obtaining and

(b) the portion of the consideration consisting of cash and cash

(c) the amount of cash and cash equivalents in the subsidiaries or

40A An investment entity, as defined in IFRS 10 Consolidated Financial Statements, need

42 The aggregate amount of the cash paid or received as consideration for

42B Changes in ownership interests in a subsidiary that do not result in a loss of

姝 IFRS Foundation A1035

(a) the acquisition of assets either by assuming directly related liabilities or

(c) the conversion of debt to equity.

Changes in liabilities arising from financing activities

44A An entity shall provide disclosures that enable users of financial

(b) changes arising from obtaining or losing control of subsidiaries or other

(c) the effect of changes in foreign exchange rates;

(d) changes in fair values; and